Launching A New OTC Product For Pelican Pharmaceuticals Ltd

Background

In this report an attempt has been made to evaluate an investment or a project considering some key factors such as the project’s Net Present Value, Payback Period and Internal Rate of Return and to produce a report stating whether the project is desirable or not. Thus in this report an extended calculation is performed considering 10 years of the project in order to figure out the project NPV, Payback Period and IRR. Then according to the outcome of the calculations appropriate recommendations or suggestions is provided in the later part regarding the acceptance of the project. To end the report on a suitable note, an overall conclusion is added at the end.

The table above shows the analysis that if the contract sales is removed from the sales forecast then the company will make losses. Therefore, it can be said that the sales forecast is appropriate.

Net present Value (NPV)

Net present Value or NPV can be termed as the difference that exist in between the current value of cash inflows and that of the present value of cash outflows. In the process of capital budgeting, NPV always plays a vital role. It assists a project manager in deciding based on inflows and outflows of cash that whether the project can be undertook or not. Moreover, through the process of NPV, a project manager can also establish the profitability of an investment or project (Damodaran, 2016). If the NPV of a project is positive then it suggests income that is generated from the project surpasses that the initial cost and hence the project can be accepted. In this case, as it was found from the above calculation that the total of discounted cash flow is $1,223,788.83 and the amount of initial investment was $330,000.00. Thus the NPV is $893,788.83 which is positive. Thus considering the positive NPV of the project that is well greater than the initial investment, the project can always be accepted.

In general, term payback period refers to that period within which the initial amount which was invested on the project or investment at the beginning of the project is returned back to the owner out of the earning of the project. The less is the payback period, the more are the chances of the project to be accepted. Smaller payback period means that project or investment is capable to draw substantial amount of earnings or profit which results in withdrawal of the initial investment in a short period (Fracassi, 2016). In this project, the lifetime of the project is 10 years. From the above calculation it was found that the project is capable to return the entire initial investment in just 3.75 years which is quite considerable. Thus after taking into account the payback period of the project it can be recommended that the project can be accepted. 

A metric that is used in the process of capital budgeting in order to gauge an investment’s potential of profitability is called the project’s Internal Rate of Return. In other words, IRR can be referred to that particular rate of interest which ensures that the NPV from every cash flows from an investment is zero. Thus higher is the IRR, the better the possibility of the project of being accepted. In the given case as it was found that the IRR is 33% thus the project is desirable considering its IRR (Ehrhardt & Brigham, 2016).

Freddy Ferguson’s Proposal

Thus after considering the above scenarios the result is quite predictable. After analyzing the potential of the project, its capability and estimating its profitability or earning it can be found that the project is quite desirable. The NPV of the project is $893,788.83. Again, the Project’s payback period is also quite good which is just 3.75 year and the IRR is 33% that is also considerable to accept the project. Thus after considering these three key factors, it can obviously be recommended to accept the project (Hillier et al., 2013).

The factors other than Net Present Value and Internal Rate of Return that a firm must consider while assessing a project is discussed here. The key factors are:

• Alignment of Projects with Organizational Strategy:

The individual who plays a crucial role in an organization must be brought together under one shed so that they can get familiar with the organization’s overall plan and strategy. This will assist the project managers to draw-up strategy to meet multiple organizational objectives. Thus, an effective way through which the efficiency of the project can be measured is using a 2-by-2 matrix. The ease of implementation of the project shall be placed on one axis while the estimated impact on the project shall be drawn on the other axis. Thus, this process will enable the project manager in gauging the major differences between the two projects (Vernimmen et al., 2014).

• Organizational Assessment:

Every organization at the time of taking any decision regarding any project must perform an organizational or environmental assessment or evaluation in order to assess the intense or impact of the project. This process is considered as a key element that assists a PM in understanding whether the project should be undertaken or not. In this assessment few questions are required to be clarified which consists of the followings:

• In what ways or how the different functions of the organization will be involved in this project.
• The functioning or processes of which particular department will play a major role in deciding the project’s outcome and what are the most important changes that they are supposed to make.
• Is the project is restricted to the IT department only or is it a project where functioning of cross-functional department is involved.

• Assessing the Resources:

Assessing the available resources in hand and its determination plays an important role in the process of accomplishment of the project. In this context resources may be termed as those factors such as people, time, budgets, etc. without the presence of which the project can never be accomplished successfully. In case if in a project, the required resources are insufficient then the project shall stall in the mid-way resulting in wastage of the resources and money as well (Huang & Kisgen, 2013). Whereas in case of a less ambitious project, it might assist a PM in reaching a situation from where one can realise more expensive or time-consuming objectives with ease.

Conclusion

The objective behind this project was to provide an overall recommendation that whether or not the project is desirable. Thus for the purpose a calculation in order to find out the NPV, IRR and payback period of the project was performed. Therefore, from the calculation the NPV was found to be positive, the IRR was also decent, and the payback period was quite small as well. Therefore taking the above factor into account the project was accepted by the organization as it have adequate potential of profitability and also possess all the necessary requirement which are required by the organization to achieve its desired goal through this project.

References

Damodaran, A. (2016). Damodaran on valuation: security analysis for investment and corporate finance (Vol. 324). John Wiley & Sons.

Ehrhardt, M. C., & Brigham, E. F. (2016). Corporate finance: A focused approach. Cengage learning.

Fracassi, C. (2016). Corporate finance policies and social networks. Management Science.

Hillier, D., Ross, S., Westerfield, R., Jaffe, J., & Jordan, B. (2013). Corporate finance. McGraw Hill.

Huang, J., & Kisgen, D. J. (2013). Gender and corporate finance: Are male executives overconfident relative to female executives?. Journal of Financial Economics, 108(3), 822-839.

Vernimmen, P., Quiry, P., Dallocchio, M., Le Fur, Y., & Salvi, A. (2014). Corporate finance: theory and practice. John Wiley & Sons.

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